Mander Pty Ltd v Clements

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: MANDER PTY LTD & ANOR -v- CLEMENTS [2004] WADC 8

CORAM: MARTINO DCJ

HEARD: 19 & 20 JUNE, 10 & 11 NOVEMBER 2003

DELIVERED : 30 JANUARY 2004

FILE NO/S: CIV 3421 of 2001

BETWEEN: MANDER PTY LTD
First Plaintiff
ROYAL STREET PTY LTD
Second Plaintiff
AND
PHILLIP CLEMENTS
Defendant

Catchwords:

Contract - Rectification - Incorrect person named as owner of premises in respect of which rent indemnity given

Legislation:

Nil

Result:

Rectification refused

Representation:

Counsel:

First Plaintiff                :     Mr R K F Davis
Second Plaintiff            :     Mr R K F Davis
Defendant:     Mr I A Morison

Solicitors:

First Plaintiff                :     Scott & Kaminickas
Second Plaintiff            :     Scott & Kaminickas
Defendant:     In Person (19 and 20 June 2003)
Geoffrey John Coad (10 and 11 November 2003)

Case(s) referred to in judgment(s):

Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410
Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450
Jones v Dunkel (1959) 101 CLR 298
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Pukallus v Cameron (1982) 180 CLR 447

Case(s) also cited:

Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374
NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740
Slee v Warke (1949) 86 CLR 271

MARTINO DCJ:

Introduction

The first plaintiff ("Mander") is a company of which the shareholders and directors are Gregory Richard Gibbs and his wife. Mr Gibbs is a pharmacist. Prior to 16 February 1999 Mr Gibbs conducted a pharmacy business at Unit 19, 217 Wanneroo Road, Balcatta ("Unit 19") in premises owned by Mander.
The second plaintiff ("Royal") is the owner of Unit 2 in the Royal Medical Centre, 162 Wanneroo Road, Yokine ("Unit 2"). Since 16 February 1999 Mr Gibbs has conducted a pharmacy business from those premises in partnership with Stephen John Wragg.
The defendant ("Mr Clements") is a former legal practitioner. Mr Clements developed the Royal Medical Centre.
By an undated contract in writing which was stamped on 15 January 1999 between Royal and Mr Clements, Royal agreed to purchase Unit 2 from Mr Clements ("the contract"). The contract was on the 1998 REIWA form of "Contract for Sale of Strata Title Property by Offer and Acceptance" to which annexures were added. The contract had two conditions added to the six conditions which are in the REIWA form. The second of these conditions was Condition 8 and was in the following terms:
"The parties acknowledge that the pharmacy business conducted by Gregory Gibbs ('Gibbs') at 19/217 Wanneroo Road, Balcatta will be relet for purposes other than a pharmacy. If at settlement the premises are not let or are let or become let but at a rental less than $40,000 per annum, the Vendor shall indemnify Gibbs against any rental shortfall from $40,000 per annum to be payable monthly in arrears. The maximum liability of the Vendor pursuant to this provision shall be $50,000."
Mander and Royal claim that Condition 8 does not accurately reflect the intention of Royal and Mr Clements and that it should provide for Mr Clements to indemnify Mander, the owner of Unit 19. Mander claims rectification of the contract so to provide. It also claims payment of $50,000 plus interest pursuant to that condition.
Mr Clements claims that the inclusion of any rent indemnity was an error and that when he and Royal agreed on the sale of Unit 2 he did not agree to provide the indemnity. He also claims that if any indemnity was agreed to it merged in the conveyance of Unit 2 to Royal. He denies Mander's claim and counterclaims rectification to delete Condition 8. In his defence Mr Clements also contends that he entered into the contract as trustee for the Clements Family Trust and not in his personal capacity. However no submission was made during the trial that this provided any defence to Mander's claim.

The development of the Royal Medical Centre

Mr Wragg is a pharmacist with experience in the development of medical centres. In or around 1995 Mr Wragg met Mr Clements. Mr Clements told Mr Wragg that he was interested in developing a medical centre on vacant land in Yokine. Mr Wragg also met Mr Don Eftos, Mr Clements' real estate agent, and Mr Robert Rousset who Mr Clements authorised to act on his behalf.
At that time there were rules restricting the location of pharmacies and for that reason the proposal of developing a medical centre was kept confidential. Mr Gibbs' pharmacy at Unit 19 was located slightly less than one kilometre from the site of the proposed medical centre. Mr Wragg hoped to purchase the pharmacy business from Mr Gibbs and relocate the business to the proposed new medical centre. He arranged for an intermediary to approach Mr Gibbs to investigate the possibility of Mr Gibbs selling his business. As a result of that approach Mr Wragg discovered that Mr Gibbs did not wish to sell his business.
Mr Wragg approached Mr Gibbs and informed him of the proposed development of the medical centre. He raised with Mr Gibbs the possibility of Mr Gibbs relocating his pharmacy business to the Centre and running the business in partnership with Mr Wragg. Mr Gibbs expressed interest in investigating the proposal but said that he did not wish to be disadvantaged and that he had goodwill in the business which he estimated as being worth $300,000.
Mr Wragg discussed with Mr Rousset and Mr Eftos the financial viability of the proposed development. The space to be let for a pharmacy was 300 square metres. Mr Wragg and Mr Rousset agreed that for the project to be viable that space would need to achieve an annual rental of $290 a square metre, so that the annual rent for the site would be $87,000. Mr Eftos advised that as a rule of thumb the capital value of a site was 10 times its annual rental, so that value of the pharmacy site would be $870,000.

Negotiations for the pharmacy site

Mr Wragg's evidence was that in early 1996 Mr Wragg and Mr Rousset met with Mr Gibbs at Mr Gibbs' pharmacy. At that meeting Mr Wragg and Mr Rousset informed Mr Gibbs that they could pay to him $300,000 for the goodwill of his business if he and Mr Wragg purchased the pharmacy site in the proposed development. Mr Gibbs said that he was interested in that proposal but that he was concerned at losing rent on Unit 19 which he owned. Mr Rousset asked Mr Gibbs what he required to compensate him for that risk of loss. Mr Gibbs said that if he did suffer a loss of rental he would accept compensation capped at $50,000.
Soon after that meeting Mr Wragg attended a meeting with Mr Clements, Mr Rousset and Mr Eftos at Mr Eftos' office. At the meeting Mr Eftos said that for the project to be viable it would be necessary for the size of the pharmacy to be increased by 100 square metres to 400 square metres. Mr Wragg said that he and Mr Gibbs could proceed on that basis provided that the annual rent for the extra space was $250 a square metre. That would mean that the rent for the extra space would be $25,000 annually. Using Mr Eftos' rule of thumb the extra space would have a capital value of $250,000 which, when added to the $870,000 for the capital value of 300 metres at an annual rent of $270 a square metre, would mean that the total space of 400 metres would have a capital value of $1,120,000.
Mr Wragg said that that purchase price would be acceptable provided that Mr Gibbs received $300,000 for the goodwill of his pharmacy and he was compensated for his loss of rent on Unit 19. Mr Wragg also said that he wished to receive $100,000 in reduction of the purchase price as a return for his work in the development of the project. That meant that the purchase price for the pharmacy site would be reduced by $300,000 for Mr Gibbs' goodwill and $100,000 as the return for Mr Wragg's work on the development which resulted in a purchase price of $720,000.
After that meeting, on 12 June 1996, Mr Wragg met with Mr Gibbs. The evidence of Mr Wragg and Mr Gibbs was that Mr Gibbs agreed to the purchase of the pharmacy site in the proposed development on the basis that had been discussed by Mr Wragg with Mr Clements, Mr Rousset and Mr Eftos. There were other conditions that were subsequently satisfied which have no bearing on this action. I accept Mr Wragg's evidence of what occurred at the three meetings.
Mr Gibbs' evidence was that on 3 January 1997 he met with Mr Clements, Mr Rousset and Mr Eftos at Mr Eftos' office. At the meeting he wished to ensure that the agreement to purchase the pharmacy site in the proposed new development included compensation to him for loss of rent on Unit 19. When that issue was discussed Mr Clements dictated a clause to record what was agreed. Mr Eftos wrote down what Mr Clements dictated and subsequently forwarded to Mr Gibbs a form of agreement to purchase the site which included the clause. Mr Gibbs took the clause to his solicitor Mr Kaminickas who drafted a clause to replace the clause dictated by Mr Clements. Mr Gibbs then forwarded the clause to Mr Eftos who included it in a form of contract for the sale of the pharmacy site which was signed by Mr Gibbs, Mr Wragg and Mr Clements. The page with the clause drafted by Mr Clements was marked "Cancelled". The purchase price on that agreement was $720,000, the same as the purchase price on the contract upon which Mander and Royal sue in this action. That agreement bore the logo of Mr Eftos' real estate agency.
The clause drafted by Mr Kaminickas was similar to the clause which is Condition 8 of the contract. Like Condition 8 it refers to Unit 19 as being owned by Mr Gibbs. Mr Gibbs' evidence as to how this came about was:
"Yes, in my discussions with Stephen [Wragg] and Robert [Rousset], they always referred to the strata at the old pharmacy as being owned by myself. It just made ease of discussion and unfortunately it's been included in the clause as being owned by Gibbs when in fact it is owned by my family trust, Mander Pty Ltd.
How did you come to make that error?---Well, as I say, I've always, in my discussions, mentioned the problem I had with that strata is that I own it and people, I would assume, believe that I personally have owned it and it has been included in clauses accordingly.
Yes. Who in fact is the owner?---My family trust, Mander Pty Ltd." (T146)
Mr Clements' evidence was that he could not recall the meeting of 3 January 1997 of which Mr Gibbs gave evidence, although he could recall that he did attend one meeting with Mr Gibbs at Mr Eftos' office. He could not recall whether that meeting was before or after the agreement of 3 February 1997.
Mr Clements' evidence was that at some time, which he was unable to specify, he and Mr Rousset met with Mr Wragg at Mr Wragg's office. Mr Clements was unable to recall in detail what occurred at the meeting but his evidence was that he told Mr Wragg that the financiers for the medical centre required that he have a net price for the pharmacy site without any contingent liabilities and that Mr Wragg agreed to that proposition. Mr Wragg agreed that he may have met with Mr Clements and Mr Rousset at his office but denied making any such agreement.
Mr Rousset's evidence was that Mr Clements initially agreed to indemnify Mr Gibbs in relation to some lost rent on Unit 19. However it was difficult to reach a concluded agreement. Mr Clements, Mr Rousset and Mr Wragg met at Mr Wragg's office. At that meeting Mr Clements said to Mr Wragg that he wished to finalise negotiations to make the project proceed. Like Mr Clements, Mr Rousset was very general in his evidence as to what occurred at this meeting. His evidence was:
"Then what, if any, discussions - or what was the effect of the discussions in relation to this rent indemnity provision that you had previously agreed with Mr Gibbs?---The discussions were to tidy up, if you like, the deal, to do away with indemnities, commissions or fees, and in return for doing away with those Mr Gibbs and Mr Wragg were to be offered the tenancy at a heavily discounted rate." (T215)
Mr Clements' evidence was that when he signed the final contract he did not notice Condition 8 and that he signed the document believing that it documented the agreement that had been reached after negotiations, which agreement was that there was to be no payment for rent not received on Unit 19.
In late 1998 or early 1999 the medical centre was ready for occupation and a new form of contract, that being the form of contract which is the subject of this action, was prepared. That document does not bear the logo of Mr Eftos' real estate agency, but it is addressed to the agency. Mr Gibbs' evidence was that the new contract was prepared by Mr Eftos. Mr Clements did not agree that Mr Eftos prepared the new agreement. Mr Eftos was not called to give evidence.
The written agreement to purchase the site was signed in late 1998 or early 1999. In the 1997 agreement Unit 2 is described as "Proposed Strata Suite No 1". In the final form of agreement it is described as being "Proposed Strata Lot No 2". No doubt by that time a strata plan had been prepared. Another difference between the final agreement and the agreement signed in 1997 is that the purchaser is Royal in the final document. Royal had been incorporated to purchase the pharmacy site. Other conditions which had been inserted in the earlier agreement had been satisfied by late 1998 and so they were not included in the final contract. Transfer of Unit 2 took place on 16 February 1999.
In the course of negotiations various other agreements were prepared and signed. In one of these the purchase price was shown as $1,220,000. This document was not tendered in evidence. Mr Wragg's evidence was that it included an allowance for fitout of Unit 2.

Attempts to re‑let Unit 19

Mr Gibbs engaged Mr Geoffrey McKenna, a real estate agent, to let Unit 19. Mr McKenna was not able to let Unit 19. On 15 April 1999 Mr Gibbs wrote to Mr Clements requesting payment under Condition 8. This was his second letter requesting payment.
Mr Clements replied by letter dated 21 April 1999. In that letter Mr Clements denied that there was any agreement to make a payment in respect of rent not received on Unit 19. In his letter Mr Clements wrote that Mr Gibbs was not present at all meetings and that in the course of negotiations the price for Unit 2 was reduced, eventually to $720,000 and that:
"The prices were reduced to allow for the cost of relocating your business, loss of goodwill and any loss of rental at your old premises.
The final figure of $720,000 was agreed between Steven Ragg and myself.
This figure included all the discount items referred to above. In particular the final price discount included any liability for loss of rent which you may incur.
Robert Rousett was present when this agreement was struck and has confirmed this was the case."
Mr McKenna was not able to secure a tenant for Unit 19. It was difficult to let because it was zoned for medical or health services use. Mr Gibbs engaged another agent but he was also unsuccessful. Eventually the unit was let in September 2001 when Mr Gibbs arranged for it to be let to an occupier of other space in the building of which it is part. I accept the evidence of Mr Gibbs and Mr McKenna that they endeavoured to let Unit 19 but were unable to do so until Mr Gibbs arranged for it to be let in 2001.

Amendments to the defence and counterclaim

Prior to the commencement of the trial of this action Mr Clements in his defence and counterclaim denied that the agreement he reached with Royal included Condition 8. He pleaded in par 2(b):
"The true terms of the agreement between [Mr Clements] and [Royal] are those set out in a contract entered into between [Mr Clements] as vendor and Stephen J Wragg and Gregory Gibbs both acting as agents for [Royal] as purchaser and dated 3 February 1997."
At the commencement of the trial Mr Clements applied to amend his defence and counterclaim to delete that plea and to plead:
"[Mr Clements] and [Royal] contracted (materially) upon the term that the price would be reduced to $720,000.00 and that all claims which had been made during negotiations by [Royal] or [Mander], or Gibbs or Wragg, including for the rent indemnity, were dropped and would not be part of the contract ('the true contract').
Particulars of true contract
The Contract was reached at a meeting between [Mr Clements] and Robert Rousset, [Mr Clement's] project manager, and Stephen Wragg representing [Mander] and [Royal], in or around late 1998 at the business premises of Wragg at 573 Canning Highway Alfred Cove."
When making that application counsel for Mr Clements amended the application so that the words "in or around late 1998" were replaced by the words "prior to 3 February 1997". I allowed the application to amend the defence and counterclaim.
At the conclusion of the trial Mr Clements applied to amend his defence and counterclaim again, this time to replace the words "prior to 3 February 1997" with the words "on a date unknown". I allowed the application.

Failure to call Mr Eftos

Mr Clements acknowledged in cross‑examination that Mr Eftos was his real estate agent. If Mr Eftos' recollection as to what occurred at the meeting of 3 January 1997, how the agreement signed on 3 February 1997 came to be prepared or as to how Condition 8 appeared in the final contract differed from Mr Gibbs' evidence Mr Clements could have called Mr Eftos to give evidence. Mr Clements did not call Mr Eftos. I conclude that Mr Eftos' evidence would not have assisted Mr Clements' case: Jones v Dunkel (1959) 101 CLR 298.

Conclusions as to course of negotiations

I prefer the evidence of Mr Wragg and Mr Gibbs to that of Mr Clements and Mr Rousset. In particular I find that there was no agreement at a meeting attended by Mr Clements, Mr Rousset and Mr Wragg at Mr Wragg's office that the price for the unit would be reduced to $720,000 and that all claims including for the rent indemnity would be dropped. Mr Wragg and Mr Gibbs were careful and I felt were being as accurate as they could be in giving their evidence. Mr Clements and Mr Rousset tended to give their evidence in terms of conclusions rather than their recollection of what occurred at meetings.
The course of amendments to Mr Clements' defence and counterclaim shows that he has no clear recollection of the negotiations. I have already referred to the fact that Mr Eftos was not called. I find it implausible that there would have been an agreement reached to remove an obligation by Mr Clements to make payment if rent was not received for Unit 19 when that obligation was contained in the agreement signed on 3 February 1997 in which the price for Unit 2 was $720,000.

Mander and Royal's claim for rectification

Rectification is available where through an error a document that purports to record a contract does not express the common intention of the parties: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350. However if the parties' intention was to use a particular form of words and that form was used, rectification is not available: Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 415. This is so even if the parties share the same mistake as to the meaning of the words they use: Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 and if the parties share a mistake as to what lies within the boundaries of land the subject of the contract: Pukallus v Cameron (1982) 180 CLR 447.
I have set out earlier in these reasons Mr Gibbs' evidence as to how his name appeared in Condition 8. I accept that evidence. As a result of the words used by Mr Gibbs at all times during their negotiations Mr Wragg and Mr Clements mistakenly believed that Mr Gibbs owned Unit 19. While that belief was incorrect there was no mistake as to the use of the words used in Condition 8. The parties used the words they intended to use. It is likely they would have inserted Mander's name into the condition in the place of Mr Gibbs' name if they knew the correct facts. However on my understanding of the law of rectification that does not entitle Mander or Royal to rectification.

I conclude that the parties used the words in Condition 8 intentionally, but under the mistaken belief on the part of Mr Wragg and Mr Clements that Mr Gibbs owned Unit 19. That mistake does not entitle Mander or Royal to rectification of the contract.

Merger

The principle of merger is that where land is transferred pursuant to a contract for sale the contract merges into the conveyance and the contractual rights are extinguished: Svanosio v McNamara (1956) 96 CLR 186; Stanford v Bayne [1923] VLR 283. However there will be no merger if the parties intend the term to survive the conveyance: Pallos v Munro (1970) 72 SR (NSW) 507; Tito v Wadell (No 2) [1977] Ch 106 at 284 ‑ 285.
Condition 8 was clearly intended to survive the conveyance and if Mander and Royal had been entitled to rectification the conveyance would not preclude that relief.

[2004] WADC 8

30 January 2004